Corporate Strategy

Swimming in Capital but Saving on Dividends

  • Why it matters

    Why it matters

    If Beiersdorf fails to pay out more dividends to shareholders, as well as improve digitization and increase its presence in emerging markets, it could fall even further behind its competitors.

  • Facts


    • Dividends have remained at 70 cents per share at Beiersdorf for years.
    • The profit margin on Beiersdorf’s cosmetic products was a mere 13.9 percent in 2015.
    • This left the company trailing behind competitors such as P & G with 19.1 percent and Schwarzkopf with 15.3 percent.
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Inside Beiersdorf AG Production Center And Nivea Haus Store
Nivea products continue to fly off the shelves, though shareholders don't seem to be benefiting from the success. Photo: Krisztian Bocsi/Bloomberg

In 2012, Stefan Heidenreich appeared to be Beiersdorf’s knight in shining armor, ready to rescue the Hamburg-based company from having spread itself too thin.

At the time, Beiersdorf, a consumer conglomerate that makes the Nivea skincare and body care products, wasn’t winning over new customers; its make-up range and natural cream products simply didn’t appeal. Former chief executive Thomas-Bernd Quaas barely had a chance to announce his strategic move toward a pure skincare range before 54-year-old Mr. Heidenreich swept in and took over the reins.

Mr. Heidenreich weeded out the weaker products, bid farewell to pop star Rihanna as brand ambassador, showed old board members the door and ushered in new ones. All successful moves if you look at Beiersdorf’s profits, which have soared by over 40 percent to some €1 billion ($1.06 billion) since he took over. Official numbers will be released this Wednesday.

Currently, the cosmetics and adhesives company is doing so well that plans are underway to build a new company headquarters in Hamburg. However, the chief executive seems unsure what else to do with his earnings.

According to the French bank Société Générale, Beiersdorf has amassed capital of €3.8 billion – a handsome sum for a company that reported estimated revenues of €6.75 billion last year.

While its largest competitor, consumer products company Henkel, is busy buying up companies to strengthen its market position, Beiersdorf is squirreling away its cash in its savings account. As a result, the company appears to be slipping behind its rivals. The profit margin on Beiersdorf’s cosmetic products was a mere 13.9 percent in 2015, trailing behind competitors such as Procter & Gamble with 19.1 percent and even relative small fries such as cosmetics company Schwarzkopf with 15.3 percent.

Also, Beiersdorf shareholders haven’t seen much of the money, with dividends having remained at 70 cents per share for years. It’s rumored that management might once again propose a 70-cents payout  this year, though the official announcement will likely only be made at its annual general meeting set for next month.

“Beiersdorf really has got some nerve not raising the dividend by at least a few cents,” said Stefan Kraus from the DSW, a German shareholders’ association.

Beiersdorf CEO Stefan Heidenreich has been notoriously tight-lipped when it comes to corporate strategy. Photo: Handelsblatt

The company owns almost 10 percent of its own stock. Majority shareholder and billionaire Michael Herz meanwhile maintains 60.99 percent of the voting capital via his holding company Maxingvest, which also owns the Tchibo coffee and trading group. Mr. Herz, now 73, saved Beiersdorf from a takeover by Procter & Gamble in 2003.

Small shareholders, however, are increasingly concerned about Beiersdorf’s apparent lack of strategy. This was heightened by a scathing report by London-based analyst Pinar Ergun of the Swiss bank UBS, who attacked the heart of Mr. Heidenreich’s leadership.

Indeed, Mr. Heidenreich is profiting from the fact that Nivea has shown stronger growth than its skincare competitors in recent years. But, according to Mr. Ergun, this won’t last. “Beiersdorf’s sales growth will lag behind key competitors if it doesn’t build up size in emerging markets and in the digital sector,” he warned.

In addition, a UBS consumer survey discovered that Nivea is perceived as neither new nor innovative. And a mere 29 percent of Nivea customers would recommend their friends to buy the famous moisturizer, compared with 50 percent of Avon users.

“Beiersdorf's sales growth will lag behind key competitors if it doesn’t build up size in emerging markets and in the digital sector.”

Pinar Ergun, London-based UBS analyst

Beiersdorf shrugged off the criticism: “It’s an analyst’s right to form an independent external opinion of our company.” However, as the company points out, there have been positive reports as well.

The publicity-shy Mr. Heidenreich has been reticent to reveal much about his corporate strategy. He tends to avoid public appearances, despite being the only boss of a blue-chip DAX listed company in Hamburg. Even his “Blue Agenda”, an official statement made up of mostly short, declarative sentences on brand strategy, received scant media attention.

One way forward for Beiersdorf could be to consider possible takeovers. But this would have to meet with the approval of majority shareholder Mr. Herz, who has been wary of purchases ever since Beiersdorf’s bought the hair care business of Chinese group C-Bons in 2007. That acquisition flopped miserably and it took Beiersdorf years to reduce the losses to zero. Mr. Herz does not want to make the same mistake again and is urging Mr. Heidenreich to refine his search to the skincare sector only.

What’s more, consumer goods companies are currently highly valued due to their relative economic independence, making it a less than ideal time for an acquisition. “We will only buy if it fits strategically and the price is reasonable,” said a Beiersdorf spokeswoman.

Meanwhile, the clock is ticking. Hans-Martin Buhlmann, head of a German association of institutional shareholders by the name of VIP, has called for a deadline to be set at the annual general meeting next April. The ultimatum: Either Beiersdorf buys something within three years or pays out a decent amount of money to shareholders.

Independently, Mr. Heidenreich is also under time pressure, as his contract runs out at the end of 2019, giving him two years to develop a future vision for Beiersdorf. According to sources, the CEO has already intimated that there is more to his life than work.

Christoph Kapalschinski covers consumer goods, textiles and food for Handelsblatt. Contact the author:
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